By Michael Quigley, Director of Research, LSN

At the beginning of October, LSN established a presence in the Asia-Pacific region so we could increase the number of mandates from investors who are unreachable during our normal business hours. Since that initiative began, we have interviewed more than 25 deal-sourcing executives interested in the life science space. These investors are based in several countries, including Australia, China, India, Japan, Korea, New Zealand, and Singapore. A significant reason for this success could be that the investors in these countries tend to be much more responsive to cold calling, which is less common in the region, and emailing. However, when analyzing the mandates from these investors, it appears that their desire for quality deal flow from U.S. and European companies is also motivating them to share their investment criteria with us.

Of the investors we have spoken with in the Asia-Pacific thus far, over 50% are global in their investment mandate. This is a higher figure than we have seen throughout North America and Europe, where about 30% of investors we’ve contacted are open to investing globally. Asia-Pacific investors maintain broad investment horizons to focus on the best opportunities available. In other respects, Asia-Pacific investors have broadly similar interests to investors in other parts of the world, with a slight advantage in overall interest in devices over therapeutics, and opportunities with early clinical data showing the strongest level of interest. . Unlike U.S. and European investors, however, many of the investors in this region are looking for companies with technology that is being developed for their local marketplace or could be adapted to it—a strategy worth considering if you haven’t already.

The Asia-Pacific region represents a massive pool of capital that entrepreneurs in the highly competitive market for life science venture capital should not be ignoring. If your company is in therapeutics, diagnostics, or medtech-devices, and if it is looking for a lead investor or the last member of a syndicate, be aware that Asia-Pacific investors are looking for such opportunities. LSN looks forward to uncovering more mandates from this region and will keep you updated on our findings.

 

By Dennis Ford, Founder & CEO, LSN

Executing a successful fundraising campaign in the life sciences space requires organization, professionalism, determination, a great technology, and an outstanding team. LSN has worked with hundreds of companies in this capacity—companies that are at all stages of development, in regions around the world, and pursuing various types of technology. We’ve been watching as the latest process for fundraising has surfaced, and I wanted to share what we see as the ten steps.

1. Company Assessment

The first step in your fundraising campaign should be a general assessment of your intentions and your company. The questions to be answered include: How much capital do you plan to raise? What will the funding be used for? What are the R&D milestones? Elucidate the risks and how you plan to mitigate them. And calculate your company’s current valuation. Painting a rosy picture is the kiss of death. Being up front, candid, and honest validates your credibility.

Most important, determine how quickly you need the capital. Note that it takes 9 to 18 months to get funded.

Raising capital is resource intensive, which raises another question: Who is going to take on this job? Recently during a three-month campaign, LSN staff identified 360 global-investor targets, sent out 600 emails, and made 400 phone calls in order to get 25 meetings. Are you or your designated point person the right one to handle this job?

When answering these and the many other questions that come up during a company assessment, it is best to consult with several trusted and reputable sources to fully assess your opportunity and determine how best to position yourself.

2. Marketing Collateral

When you have a firm grasp on how you are planning to position yourself to potential investors and who will be reaching out, you need to develop marketing materials that clearly and succinctly describe your opportunity. Essential materials include a logo, tagline, elevator pitch, executive summary, PowerPoint presentation, and a website.

These materials will be your face to the investment community, and as such, they should be drafted with careful consideration. It is crucial that you do not drown potential investors in reams of data and articles from scientific journals supporting your science. Don’t try and prove the market for your product; investors already understand the market-size element. Tell the story of the technology; tell the story of how the management team found each other and bonded; make the story simple and easy to grasp.

When crafting your materials, remember that investors are busy. Some have told LSN that they receive 500 to 800 solicitations a week, so you have to quickly and adroitly communicate your value. Initially, you may get five to ten seconds of an investor’s time on your home page. The purpose of your marketing materials is to pique an investor’s interest enough that he or she agrees to set up a meeting to learn more, not to close a deal.

Interested investors will thoroughly review all your data and journals at the due diligence stage, but they won’t invest time up front to review your materials if your opportunity isn’t presented in a way that clearly demonstrates its value to them.

3. Global Target List

Make no mistake about it: fundraising is a numbers game. Only using personal networks and staying regional is a waste of time. You need to find as many investors as you can who are a fit for your sector and the stage of your company. The only way to do this is to aggregate a list of global investors who are a potential fit for your firm and canvass them through email and phone.

Identifying potential investors is no small task. With investors moving in and out of the space, and with many investors maintaining a very low profile, this step can take a considerable amount of time to do well.

Here at LSN, we identify investors using a number of methods, including previous financing rounds, conference attendee lists, news feeds, and networking events. When looking for potential investors, you need to consider your company’s stage of development, technology type, indication area, region, and the amount of capital you are looking to raise.

You should be looking for investors who have historically invested in companies similar to yours or for partners that have experience in your field of medicine. When looking for investors, you will more than likely come across those who tend to look at later stage opportunities. These investors should absolutely be included in your list. Although they aren’t an appropriate investor for your company at this stage, by beginning a dialogue with them now, you can keep them abreast of what you are doing, which will make securing later-stage financing much more efficient.

Using the LSN investor platform, our business development folks can generally identify from 250 to 400 investors across ten categories for a given opportunity based on fit. We will canvass them, and those who show an interest are the ones we go after and concentrate on. These targeted campaigns uncover investors who are active and looking to fulfill their investment mandates. If we target 400 investors, that group usually gets whittled down to 60 to 80 investors who merit some time. That’s how the numbers game works. In turn, that group of 60 to 80 investors is narrowed down to 20 to 30, then to 10 to 12, and eventually to the 2 or 3 that will invest in the round. All this takes time and focus and leads us to the next part of the process, which is getting the tools in place to handle a list of 400 investor candidates and the associated tasks.

4. Cloud-Based Application

Staying on top of that many contacts can be overwhelming; however, it is made drastically easier through cloud-based applications such as SaleForce.com. Such applications provide a list-management and task-management system. Note that if you’re using a spreadsheet, you have already lost the battle. SalesForce.com ($5.00 a month) can help you store, organize, and classify the data and contact information for all of the investors on your list, as well as allow you to set follow-up dates to better understand who you need to be contacting and when. Other useful pieces of infrastructure to consider include an email-tracking system, such as Constant Contact or iContact, that allows you to see when people are opening and clicking on your emails to determine your hottest targets. These applications are also online-content generators, which you can use to publish articles and other content surrounding your opportunity.

5. Conference List and Outbound Campaign

With your cloud infrastructure in place, you need to organize your road show. You need to determine which investment and partnering conferences are taking place during your campaign and which ones you should be attending. Ideally, you will be able to book conferences across the world to meet with various investors. Additionally, you should be aligning your outreach to try and book meetings with investors who have offices near the conferences you are attending even if they aren’t going to the event. Investors tend to be more responsive if you tell them the brief window of time during which you will be in town, and you should take full advantage of that. A conference-only strategy is a nonstarter. You need to dig in and use every available means to get out of office and in front of investors. I call it the last three feet: when you stick out your hand and introduce yourself, the game is afoot!

6. Campaign Execution

It takes money to make money. One year on the global fundraising trail is going to cost you $80,000 to $100,000. Marketing collateral, website development, road trips, conferences, and regional and global travel—it all adds up. In fact, the latest trend is for investors to demand that 10 to 20% of the funds be set aside for future market development. Budgeting and capital planning is all part of adroit execution. This is where the rubber meets the road. With your materials, infrastructure, and plan in place, you need to physically begin the outreach to potential investors. This should be done through an email-marketing campaign that coincides with a phone-canvasing campaign that is tracked and managed through your cloud infrastructure. You need to focus on taking cold leads off the table and moving forward with the good ones.

7. Scheduling and Logistics

When you get investors interested, you need to act quickly to book meetings. Whether it’s over the phone or the more preferable in-person meeting, you need to get it on the schedule quickly. If it’s an in-person meeting, tackle the logistics equally as quickly. Identify your transportation and accommodations for the trips you will be taking. By working out some of the details of your travel plans during the outreach phase, you have the opportunity to meet with more investors in the regions you will be visiting.

8. Meetings

When attending meetings and conferences, you should bring your A game. You should be prepared to answer all questions investors may pose and take diligent notes on the points they make. It is also important to not hide the risks associated with your investment at this stage. Investors understand that life science investing is inherently high risk, and if they uncover something later in the due diligence phase that you didn’t tell them up front, they may feel their trust was misplaced and the deal could sour. You should view networking at conferences and events as very much a part of your job, you never know who may be able to connect you to who so it is important to always remain professional about what you are doing while managing to shake as many hands as possible.

9. Conference Report and Road Trip Reports

Throughout the various meetings and conferences, you will be getting a lot of different feedback, both positive and negative, from investors. As you continue to move forward, you should be aggregating all of this feedback and periodically be making full reports for colleagues based on what you hear. What are the most common reasons investors decline to meet or move forward? What seems to grab their attention? What are their most common questions? Answers to these questions and others should all be included in the report and should be taken into consideration when you tweak the marketing materials. In fact, if the feedback seems to point strongly in a direction that is different from the one you are currently pursuing, you should consider pivoting your company. This report should be shared throughout your company and, in particular, with your board to keep them up to speed with the fundraising campaign and to demonstrate how the marketplace is viewing the opportunity.

10. Investor Follow-Up

Properly using the cloud infrastructure can make your follow-up process much more efficient. You can set dates for follow-up at any time using the task- and relationship-management software. You should absolutely hold yourself to the dates you set. Moving interested investors deeper into the due diligence stage and keeping later-stage investor abreast of your progress will save you time and increase your odds for success. Also, you need to be constantly parsing and changing your target list to reflect your hottest leads to ensure you spend more time working towards your best targets and do not spend hours trying to contact investors who aren’t interested.

By Tom Crosby, RESI Conference Manager, LSN

At the upcoming RESI Conference on January 13, 2015 in San Francisco, leaders from the top venture philanthropy organizations from around the world will discuss their experience with impact investing. Venture philanthropy is one of the most talked about funding models in early stage life science investments today. Because venture philanthropy organizations typically fund on a multiyear basis, these heavily donor-funded organizations are working towards making significant results possible on a quick time line.

LSN is pleased to announce the representatives for the biotech track of venture philanthropy. The complementary session on venture philanthropy in the medical-device space will be announced at a later date.

Moderated by Brian Horsburgh, Trustee of the NeuroNetworks Fund, the audience will hear from:

• Ross Tonkens, Director, Science and Technology Accelerator, American Heart Association
• Lindy Fishburne, Executive Director, Breakout Labs
• Maria Berkman, Director, Broadview Ventures
• Tom Capetan, Business Development, Foundation Fighting Blindness

Panelists will address the following important questions on investing for impact: What do venture philanthropy investors look for in initial correspondence? What goes into the process of investment selection and due diligence? What value can venture philanthropists bring to your company in addition to capital? The session will also cover the metrics that are most important in evaluating progress and how grantees and donors are involved in analyzing these results.

If venture philanthropy investment is part of the plan to get your company funded, this panel presents a great opportunity to broaden your network while updating your understanding of these organizations.

By Shaoyu Chang, Research Analyst, LSN

The biotechnology industry is growing in the Asia-Pacific and Latin America regions,[1] and it is attracting local and foreign entrepreneurs and funding. Compared with companies in developed markets, ventures in these regions have unique opportunities and challenges as a result of the large populations and rising healthcare requirements. Two areas of R&D hold particular promise.

Medical devices—particularly diagnostic equipment, implantable devices, and products for the prevention of disease—represent a rapidly expanding market in China, India, and Brazil, given their aging populations. Because consumers in these countries are also often brand-conscious and willing to pay higher prices for better quality products,[2] large medical-device manufacturers from Western countries are positioning themselves to tap into the market potential by merging with or acquiring local players. [3] For example, in 2013, the UK’s Smith & Nephew announced the buyout of Indian trauma-device maker Adler Mediequip. This move followed in the footsteps of other major mergers or acquisitions by Stryker, Zimmer Holdings, and Medtronic.

The generic drug market is another area of promise in emerging economies. While big pharmaceutical companies in developed markets are plagued by patent cliffs and generic competition, generic drugs have solid double-digit growth in emerging markets. The rising prevalence of chronic diseases along with cash-strapped healthcare systems and consumers’ fear of counterfeit products have created a demand for low-cost, high-quality treatments. It is noteworthy that while multinational corporations such as Atavis, Mylan, and Abbott are gaining a more significant foothold in the emerging generic-drug markets, drug makers from the developing world, such as Ranbaxy from India and Aspen from South Africa, are now among the top players in the field and are operating on a global scale.

Therapeutics currently accounts for the largest chunk of total funding in most biotechnology hubs. However, R&D for new drugs is a high-risk path in emerging economies in light of its demand for capital, talent, and a favorable regulatory environment. “It needs 75 different kinds of expertise to develop a new drug,” warned Jonathan Flaming, General Partner with Oxford Bioscience Partners, who spoke at a recent conference in Boston. “Even in the U.S., you cannot do it everywhere.”[4] He believes that an emerging economy such as China is not well positioned to develop new therapeutics for several reasons, including the lack of professionals and the cultural issues. Mixed results from government-backed incubator initiatives, such as Malaysia’s BioValley[5] and India’s ICICI Science Park and Gujarat Science Park,[6] appear to support his point.

Emerging markets represent a vast and growing need for healthcare innovation that is underserved by lack of local infrastructure. This presents a significant opportunity for companies working on technologies in developed countries that are able to penetrate these emerging markets. LSN’s research team has uncovered a number of investors in the Asia-Pacific region that are looking for companies that are developing products for Asia and other emerging markets. Be on the lookout for more articles on this topic as we uncover additional information on the investment landscape for these regions.

[1] Gautam, A., & Yang, S. (2014). “Market watch: A framework for biomedical innovation in emerging markets.” Nature Reviews Drug Discovery, 13(9), 646-647.

[2] Weeks, L. “Five Trends Transforming the Medical Device Industry in 2014.” June 5, 2014. GxP Lifeline. Accessed from http://mastercontrolinc.blogspot.com/2014/06/five-trends-transforming-medical-device.html.

[3] Buford, T. “Trend continues as Big Orthos focus on emerging markets.” June 30, 2014. OrthoStreams. Accessed from http://orthostreams.com/2014/06/trend-continues-as-big-orthos-focus-on-emerging-markets/.

[4] Flemming, J. “What are the Best Cross Border Opportunities Today for American and Chinese Entrepreneurs and Investors?” October 25, 2014. Talk at 2014 CABA Biomedical Investment & Entrepreneurship Symposium, Boston, MA.

[5] Lerner, J. (2009). Boulevard of broken dreams: why public efforts to boost entrepreneurship and venture capital have failed–and what to do about it. Princeton University Press.

[6] Chakma, J., Sammut, S. M., & Agrawal, A. (2013). Life sciences venture capital in emerging markets. Nature biotechnology, 31(3), 195-201.

 

By Tom Crosby, RESI Conference Manager, LSN

At the RESI Conference in September, LSN hosted a panel of family office investors that attracted a standing-room-only crowd and received excellent reviews. Given the success of that session, LSN is pleased to announce the first panel for RESI 4 San Francisco, January 13, 2015: Family Offices Investing in Early Stage Medtech. This will run simultaneously with Family Offices Investing in Early Stage Therapeutics, the details of which will be announced at a later date.

In recent years, family offices and private-wealth investors have become an increasingly important pool of capital for fundraising entrepreneurs in the life science space. Unlike angels or high-net-worth individuals who generally have up to $100 million in capital and opportunistic investment mandates, family offices and private-wealth groups represent families and individuals who have $100 million to $1 billion or more in total assets and who use a more institutional investment approach.

The amount of capital that these groups manage enables them to have a dedicated staff for screening, due diligence, deal selection, and portfolio management. However, often motivated by more than only financial returns, many family offices have taken an interest in the potential social impact that investments in the life science sector can bring.

This panel spotlights family offices— One of the new categories of investor that has entered the early stage arena vacated by VC.

Moderated by Bill Brah, Founder & Executive Director of UMASS Venture Development Center, the panel includes the following speakers:

Alejandra Paradones, CEO & Founder, BSI Capital Group

Neil Wyant, Managing Director, Everett Partners

Clay Heighten, Founding Member, Green Park & Golf

Norm Gitis, Managing Partner, Lymo Investments

What motivates family offices to invest in the space? Why do they invest directly? How are family offices found? How are deals generally structured, and how do the terms of family offices differ from the terms of other investor classes? Panelists will answer these questions as well as discuss how an entrepreneur can get in touch with these investors and the information they look for in the initial correspondence.

What—in addition to capital—can these groups bring to the table for an early stage company? Find out at RESI San Francisco, January 13, 2015, at the Marines’ Memorial Club and Hotel.

By Michael Quigley, Director of Research, LSN

 Several significant factors have been attracting capital to the life science sector over the past two years. An IPO explosion has provided many life science investors with positive exits, and, in turn, they have established new funds to put some of that capital back to work. In addition, new investors have come to the sector as a result of the number of successful IPOs and low interest rates; investors are looking for better returns. These factors led to life science funds raising an estimated $3.5 billion in 2013 alone.[1] Several funds have continued to raise capital this year.

This is positive news for fundraising entrepreneurs, and their next step should be to pinpoint the funds that have raised new capital and their investment targets.

The LSN research team has identified and interviewed more than 100 investors who have raised new capital since 2012. These investors fall in eight categories. (See Figure 1.)

Venture capital and private equity represent the largest number of investors; however, the other investor types represent a significant amount of new capital. Although each of these investor categories have various motivations for investing in the space—for example, financial, philanthropic, or strategic—it is promising to see so many groups with new capital to allocate to the space.

Also worth noting are the regions where these investors are based. The investors we identified are based in 20 countries in North America, Europe, and Asia, and Oceania. (See Figure 2.)

This distribution of investors with new capital reflects the IPO environment in these regions. The U.S. and therefore North America has had the highest number of IPOs, followed by Europe and Asia and Oceania. More important than where the investors are based, however, is where they are looking to allocate. Of the investors we spoke with, more than 50% are looking to invest across continents or globally. Previous articles in this newsletter have discussed the globalization of investment in the life science sector; this trend is validated by the current interests of funds and investors.

It would appear that the time is now for a start-up to execute a fundraising campaign if it has the data and team to support it. Not only is there capital to be had, but early on in a funds lifecycle, investors often consider research and technologies at earlier stages of development as the investors have the time and capital on hand to support them.

 

[1] Life Sci VC, “Perspectives on VC-Back Biotech: Looking Backward & Forward,” 2013 (http://lifescivc.com/2014/01/perspectives-on-biotech-looking-backward-forward/).

 

By Shaoyu Chang, Research Analyst, LSN

The role of corporate venture capital (CVC) continued its remarkable expansion in 2014. In the second quarter, CVC funding accounted for 29% of total venture capital funding. In the healthcare sector alone, CVC funding soared to a five-quarter high of $1.4 billion, up 200% from the previous quarter.[1] SR One, Novartis Venture Funds, and Johnson & Johnson Development Corporation led CVC funding in life sciences, while Aduro Biotech, Coherus BioSciences, and Principia BioPharma successfully raised more than $50 million in financing rounds with their CVC partners.

CVC funds are an attractive option for life science entrepreneurs for several reasons. Compared with other investors, CVC funds are not only able to provide more capital but also willing to take on riskier projects with promising potential. Working with industry veterans can provide start-ups with critical know-how in areas such as technology design, clinical development, and product commercialization.[2] And in some cases, CVC investments lead to an acquisition or strategic partnership.

How should a fundraising executive approach a CVC fund? At the most recent RESI conference, experts from six prominent CVC funds gave the following tips.

To begin with, entrepreneurs should understand what CVC funds are looking for and manage expectations from both sides. As discussed in our previous blog post,[3] CVC funds come in different flavors. Generally speaking, internally focused CVC funds seek innovations that can bolster the future portfolio of their parent company, while externally focused CVC funds look for technologies from a return-on-investment viewpoint, with less regard for the mission of the parent company. Aligning your goals with the expectations of a corporate partner is essential. A recent study found that this is an area where there is often a mismatch.[4]

CVC funds prefer to work with entrepreneurs who have a tight grasp of intellectual property and a good understanding of the commercial potential and the competitive landscape. They also favor an academic team with whom they have collaborated or with previous experience with another industry partner. To win the confidence of a CVC fund, first-time CEOs are advised to invite experienced entrepreneurs to join the start-up and build a team with credible advisors, consultants, and board members. “If you ask for money, you’re going to get advice. If you ask for advice, you’re probably going to get money,” a panelist said.

Entrepreneurs should invest time to foster relationships. Simply submitting proposals through the websites of pharmaceutical companies is not going to result in funding. It requires a substantial amount of energy to find key industry personnel who have the scientific expertise to understand the discovery and a senior position to make decisions. When a start-up has identified the key people, entrepreneurs should use conferences, social networks, personal referrals, email, and phone calls to engage these folks in conversation.

Finally, our panelists emphasized the importance of long-term relationships. Although the first contact with a CVC fund may not always develop into an investment, entrepreneurs are encouraged to maintain the dialogue. New opportunities may open up, investment criteria may change, or a portfolio’s requirments may change. “We have a lot of continuing dialogues that blossom into something really cool and end up different from the initial conversation,” a panelist concluded.

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[1] CB Insights. “Corporate Venture Capital Report – Q2 2014 – CVCs Participated in $4B of Funding Across 187 Deals,” September 23, 2014. Accessed from https://www.cbinsights.com/blog/corporate-venture-capital-report-2014-q2/.

[2] Behr, J., & Murray, P. “In Search of Dry Powder,” Nature Biotechnology, October 31, 2013.

[3] Fuller, J. “Gorillas at the Table: Corporate Venture Capital,” Life Science Nation, August 9, 2013. Accessed from https://blog.lifesciencenation.com/2013/08/09/gorillas-at-the-table-corporate-venture-capital/.

[4] McCammon, M. G., Pio, E., Barakat, S., & Vyakarnam, S. “Corporate Venture Capital and Cambridge,” Nature Biotechnology, October 9, 2014.